Head has scheduled a private general shareholders' meeting on Dec. 3 in Amsterdam to vote on a proposal to draw on its reserves to increase its share capital. The purpose of the resolution is to avoid the company's delisting from the Vienna Stock Exchange after Dec. 31 as the capital has fallen below its statutory requirements. Alternatively, the company will seek a delisting of the shares, most likely through a squeeze-out process, which should be relatively easy to accomplish.
In fact, shareholders have positively responded to an unconditional offer made by Head on Oct. 9 to buy back their shares at a price of €1.60 per share, which represented a premium of 23 percent on the share price of the previous day. The offer expired on Oct. 31 and it allowed the company to acquire a total of 4,844,162 shares on Nov. 5, leaving only 2.95 percent of the equity in the hands of minority shareholders.
Head already carried out a share buyback in the second quarter of this year, which cost the company €23.8 million. The more recent share buyback cost it €7.8 million.
Meanwhile, Head posted its usual financial report, covering the third quarter and the first nine months of this year through Sept. 30, indicating that it expects flat results for the full financial year due to the extraordinary costs related to the tender offer and to a couple of acquisitions earlier this year.
In the latest quarter, Head's net profit declined by 4 percent to €4,650,000, although its operating income rose by 30 percent to €9,821,000, or 9.7 percent of sales, excluding extraordinary charges. Sales went up by 9 percent to €101.7 million with increases in all the divisions. Net debt ended up €46.6 million higher than a year ago on Sept. 30 because of the earlier share buyback and the acquisitions.
For the first nine months of 2013, Head saw a decline in net losses to €4,302,000 from €4,792,000 in the corresponding nine-month period of 2013. Sales increased by 5.0 percent to €238.6 million, with a 6.5 percent rise in local currencies, and they generated an adjusted operating profit of €1,719,000 against a loss of €1,282,000.
Winter sports sales went up during the nine months by 8.6 percent in euros and by 9.4 percent in constant currencies, reaching €77.6 million, thanks mainly to earlier shipments of skis and ski boots. Bookings of winter sports products were up by around 5 percent by the end of September, but Head cautioned about the turnover in the segment for the full year, noting that it will largely depend on the weather and its impact on reorders during the fourth quarter.
Head estimates that retail markets for snow sports products declined by between 5 and 10 percent in the 2013/14 season worldwide, with the exception of Italy and Spain. The number of skier days fell by 4.5 percent in France and by 6.3 percent in Austria. Head feels that it has gained market share because of a very good race season and attractive product offerings.
| Head Consolidated Income Statement | |||
| ('000 Euros, Quarter ended Sept. 30) | |||
| 2014 | 2013 | % | |
| Winter Sports | 53,864 | 49,166 | 9.6 |
| Racquet Sports | 34,822 | 32,522 | 7.1 |
| Diving | 13,337 | 12,021 | 10.9 |
| Sportswear | 1,469 | 1,056 | 39.1 |
| Licensing | 1,274 | 1,061 | 20.1 |
| Sales deductions | (3,104) | (2,796) | 11.0 |
| NET REVENUES | 101,662 | 93,029 | 9.3 |
| Cost of Sales | 58,018 | 54,946 | 5.6 |
| Selling & Marketing | 26,156 | 23,818 | 9.8 |
| General & Administrative | 7,504 | 6,899 | 8.8 |
| Net Compensation (Income) Expense | (51) | 10 | - |
| Other Operating (Income) Expense | 164 | (187) | - |
| Net Interest Expense | 1,505 | 787 | 91.2 |
| Other Non-Operating Income | 1,547 | 481 | 221.6 |
| Pre-Tax | 6,820 | 7,238 | -5.8 |
| Tax Expense | 2,170 | 2,386 | -9.1 |
| NET PROFIT | 4,650 | 4,852 | -4.2 |
| Earnings/Share - Diluted | 0.07 | 0.06 | 16.7 |
Head says the tennis market was nearly flat in value this year globally, rising by one percent in the U.S. and dropping by 0.6 percent in Europe, but the U.S. tennis ball market declined by 3.3 percent in the first half. The company's racquet sports sales rose by 1.3 percent to €115.4 million in the first nine months, with higher volumes for tennis balls and higher revenues from accessories offset by exchange rate movements.
Sales of diving equipment declined because of tough market conditions, but they showed an overall increase of 5.4 percent to €42.6 million for the nine-month period because of the consolidation of the newly acquired Scuba Schools International (SSI) business.
Sportswear sales increased by 11.0 percent to €4.7 million as higher sales of winter sports clothing offset a drop in sales of sports bags in the U.K. Licensing revenues grew by 34.8 percent to €5.0 million.
Head paid €4.9 million for a Czech factory for ski bindings and €5.0 million for SSI and its parent company, Concept Systems International. Combined with earlier moves in tennis balls, the acquisitions allowed the company to lower manufacturing costs for bindings and balls and to improve the group's overall gross margin to 43.7 percent from 40.9 percent in the year-ago period. This was partly offset by higher advertising and departmental selling costs in the winter and diving divisions.
